Posts Tagged stocks

Stocks are trading a bit higher today, particularly the NASDAQ which historically has been a good indicator of what mortgage rates will do: when the NASDAQ is down rates are down; when the NASDAQ is up, rates are up. This is because of the inverse actions of Stocks and Bonds. When Stocks look bad investors move their money to lower yield, yet safer Bonds thus adding strength to them and lowering interest rates also on Mortgage Bonds. When Stocks look good investors transfer their money from safer, lower return Bonds to riskier but higher earning Stocks.

So far this morning the +0.49% uptick in the NASDAQ hasn’t had any real effect on Mortage Interest Rates though with rates at the same point they were at closing yesterday.

The Senate votes on the Stimulus Plan today and we’ll see what effect that has on the Stock Market. One modification from Obama’s plan that I’m not happy about is changing the original plan’s tax credit for homebuyers from $15,000 for all home buyers this year that does not have to be paid back to an $8,000 tax credit for first-time home buyers that only has to be repaid if the home is resold within 36-months of purchase. This isn’t much different than the current $7,500 tax credit, and as many real estate industry advisors have stated isn’t helping much anyway because many first-time home buyers don’t have the initial downpayment to buy a home in the first place to take advantage of the tax credit 10 months from now.

If the government really wants to do something to stimulate home sales they need a credit that can be used at the closing table for down payment purposes or to pay closing costs, and they need to make it available to all home buyers for the next 12 months, or so.

But what do Realtors and loan officers know? We’re just the one’s in the trenches dealing with home buyers everyday, so we must be way more out of touch with the market than some congressman that has never represented a home buyer in a purchase transaction.

With mortgage bonds facing resistance and stocks on the cusp of a rally today the market favors locking if you have a loan closing soon that isn’t locked yet.

Yesterday, the government admitted what all we commoners have known for quite a while: the country is in a recession. In fact they say we’ve been in one since December of 2007. I think most any small business owner could have told you that. But the “official” announcement reveresed five days of strong trading on Wall Street as timid investors pulled all their money out of the stock markets. Hopefully they’ll head for the safety of Bonds, which will further sustain or help mortgage interest rates, especially here in Utah where rates seem to be better than the national average, even though gas prices aren’t.

So for today, I recommend carefully floating if you are in the process of a new mortgage loan. As of this writing rates are still where they were yesterday, so it’s just going to be a matter of watching them closely and moving quickly to lock if they start to move upward.

Yesterday the minutes from the Fed’s October meeting were released. The minutes expressed concern over the health of the economy and targets for employment and economic growth were lowered. The big news though was that after years of being concerned about inflation, the Fed is now saying they are concerned with deflation. The news shocked the financial markets and directed a huge flow of money into uber-safe Treasury Notes.

We are seeing problems in available credit being offered to consumers right now, and deflation is when prices drop due to decreased in the supply of money and credit. When this happens typically investors run for fixed instruments like Bonds because the fixed rate of return will buy them more goods and services over time.

The last time this happened was in 2003 when Alan Greenspan mentioned deflation. Mortgage bonds rallied due to investors seeking safer places for their money, which in turn dramatically dropped mortgage interest rates and set-off a refinance boom. We could see this again.

Right now Mortgage Bonds are holding their own and interest rates are stable if not getting a little better. So for now I recommend floating if you are in the process of refinancing or buying a new home.

In the “I said it here first” column, Forbes released an article yesterday saying that the mortgage reforms and new programs put in place by the Federal Government have only helped a fraction of those they said it would when they were selling them to you and I. I said it a while back, these reforms and programs to help homeowners were more of an election year “Look what I’m doing for you, now vote for me” song and dance than real, helpful policy. According to Forbes, the FHA Secure program initiated in August of 2007 that was to help more than 400,000 home owners over 3 years has only actually helped 4,000. That’s far off from the 133,000 per year it was supposed to help. It comes as no surprise that they are now going to spend millions of dollars to figure out what went wrong so they can fix it.

Why is this? First, In my opinion it’s because we have Congressmen who do not understand the first thing about a mortgage other than having one of their aids write the checks to pay the mortgage for their seven homes, making policies regarding your mortgage.

Second, the very people the FHA Secure program was aimed at helping can’t qualify for it. This is because rich Congressmen have no idea what Joe Q. Public goes through on a daily basis. They have no idea what it’s like to have to decide whether to pay the electric bill or buy groceries for your family. So they make policies that have little relevance to Main Street America, but sound good when they are pandering to their constituents for reelection. Remember how many Congressmen came out last year pronouncing how they were going to single-handedly clean-up the mortgage industry and save your home? Yup. They’ve done a good job.